Trillions of dollars are needed to shift the world to a low-carbon future, but where will all that money come from? While momentum is growing in rich countries, developing countries are still struggling for finance. Without significant increases in the amount of money spent, the world is unlikely to meet its climate goals, and yet international negotiations are at a deadlock.
Avinash Persaud has a plan: the Bridgetown Agenda. He’s the special envoy on investment and financial services for Barbados and is working with his country’s prime minister, Mia Mottley, to transform the global financial system. Together they are putting pressure on the World Bank and International Monetary Fund to turbocharge the roll-out of clean technologies in developing countries. Next week, he’ll be presenting the latest version of the agenda to world leaders in Paris, at a summit hosted by French President Emmanuel Macron.
This week on Zero, Akshat Rathi sits down with Avinash to discuss his plan, and why he thinks now is the time these aging financial institutions can finally be reformed.
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Zero is a production of Bloomberg Green. Our producer is Oscar Boyd and our senior producer is Christine Driscoll. Special thanks to Kate Mackenzie and Kira Bindrim. Email us at zeropod@bloomberg.net. For more coverage of climate change and solutions, visit https://www.bloomberg.com/green.
Welcome to zero. I'm akshatrati this week canaries, coal mines and a call for cash. Every now and then I get to hear an idea that, if it's pulled off, will be truly transformational. This episode is about one of those ideas. At COP twenty seven last year, there was a moment that took the conference by storm. Mia Motley, the Prime Minister of Barbados, took to the stage in front of world leaders and in a blistering speech, gave her vision to fix the climate crisis.
I come from a small island state that has high ambition, but that is not able to deliver on that high ambition because the global industrial strategy that we have has fault lines in it.
Typically at these meetings, poor countries ask for money from rich countries and don't get it. It's a reasonable demand because poor countries didn't cause the problem, but need to be a part of the solution. So to break the deadlock, Motley had a different idea.
She proposed a.
Plan to unlock trillions of dollars in private investments that could turbocharge the buildout of climate solutions like solar and wind power in developing countries.
The global North borrows interest rates of between one to four percent, the global South of fourteen percent. This is the ball reality, and we have come here to ask us to open our minds to different possibilities. We believe that we have a plan.
That plan is known as the Bridgetown Initiative, and it calls for the reform of the current global financial system that was built in the aftermath of World War Two. At that time, half of today's countries didn't exist. The country I was born in, India, was still a British colony. And yet that system, made up of institutions like the World Bank and the International Monetary Fund, continue to be crucial to helping developing countries develop further. In twenty twenty one, these so called multilateral development banks spend fifty one billion dollars on climate finance, which sounds like a lot of money, but it's nowhere near enough to meet climate goals. My guest today hopes to hugely increase that figure and is the architect of the Bridgetown Initiative. Avinage Persode. He's the Special Envoy on Investment and Financial Services for Barbados and a key advisor to Mia Motley.
Where Canaries in the mind, and you could either think, well, how do I get some little bit of air for me? I'm watching these other canaries in the mind being severely starved of oxygen, or you could try and fix the mind. And that's the only fundamental way of solving this problem.
In its simplest form, Bridgetown asks for one big thing, using the power of these giant financial institutions to make it far less risky to invest money in climate solutions in developing countries, turning a trickle of billions into a flood of trillions. Together with Prime Minister Motley, Avinash will be presenting an updated version of the Bridgetown plan at a big summit in Paris being hosted by French President Emmanuel Macron next week. The global financial system is complicated and so are the solutions to fix it. However, without those fixes, there is little chance of meeting climate goals. So it's great to get a chance to question one of the smartest people working on these solutions. I sat down with Avinash ahead of the summit to discuss some of his fixes and why he thinks now is the time these aging financial institutions will be finally reformed. Avinash welcome to the show.
Thank you.
How did you go from being born in Barbados to trying to fix the global financial architecture for the climate era.
Well, I left Barbados when I was seven years old, but I do think that it left a lasting impression on me. My father used to when we arrived in Northwest London. This is in the nineteen seventies, there weren't many people of color, and he said to me, you are the ambassador to Barbadis for Northwest London. So I'd been going around the place being very proud of Barbados, saying good morning to all these Brits who were startled that some stranger in the street would say good morning to them at aged seven. So it had a lasting impression on me, but I ended up. My dad was a development economist. He was involved in a lot of the big struggles of the nineteen eighties, like anti apartheid. He helped write the sanctions against South Africa, some of the first commissions on the environment, the Brutland Commission. That excited me. So I wanted to be a development economist, and he said to me he'd fund my first degree, but not my second. So I got a job in the city of London, and I was quite good at it and quite enjoyed the fact that people were listening to me. And if I development economists, people began listening to me because finance is the rub of most problems.
Now Mia and Motley is the Prime Minister of Barbados and has become a star in climate circles as a voice that is giving importance to finance and how to move billions to trillions. She gave this defining speech at both COP twenty six in Glasgow and then COP twenty seven in Shammel Shaken, Egypt, about the vulnerability of small island states to climate change. Now, how did you end up working with Mia Motley on these issues?
Well, Prime Minister Motley and I met at college aged eighteen, here at the London School Economics. She was studying law, I was doing economics, and so that's how I ended up getting to know her. Years years later, I'm back in Barbados advising her on her finance and budgets. And we have the most horrific hurricane season. It's twenty seventeen, two category five monster hurricanes. I mean, when you see the satellite pictures, these hurricanes are bigger than the entire chain of islands, and it crashes Dominica. They lose two hundred and twenty six percent of GDP in four hours. So anyway, she sends me off and says, this is the time U economists need to step up. Here's a country that needs some support. And so I was involved in helping them and develop their plants after the hurricane. And that was really, to be honest with you, and I'm not particularly proud of it, but it was only that point that I really began understanding climate change and the impact on countries who were climate vulnerable. What were the financial and economic consequences of this, and what the global system. How everyone said that they cared, but how there was actually the end of the day, very little money.
And just so we have the contexts because you go from meeting her in university to then working for her, advising her on her budgets. What were the intervening years, like, you know, how was she as a person you knew in university and now you know as a colleague.
Well we would connect from time to time, but she moved back to Barbados. She was always committed to being involved in the development of her country, our country. I went off with a career in finance and ended up being one of the architects of the new international financial regulation Basil III macroprudential regulation. And she was observing this and observing my work in this area. So when she was asked to give a budget in Barbados, she asked me to come along and help her with that budget. And I came back, and she's a very effective politician, And I thought I was coming back to write one speech, and I've ended up living there and changing my entire career and everything.
So you visit Dominica and you realize that climate change is going to be a massive problem for countries like Barbados. But then the solutions that you ended up developing is not just addressing the problems of climate vulnerable countries, but trying to fix the entire global financial architecture, which is great, But how do you go from that problem, which is local caused by a global crisis, to trying to address a global crisis of another sort.
Well, we're sitting there thinking about why is it that we're in this situation. Small island states in the tropics, I mean, climate funderable countries are not just small states or island states. There really any country between the tropics of Cancer and the Tropic of Capricorn. Within that band, that's where temperatures are rising to some of the highest levels and where sea levels are increasing to the highest levels. I mean, I'm an economist, so I know no science. I have to be explained to me that when the glaciers melt at the poles, that the water doesn't stay there because of the spinning of the earth. The water ends up on the equator, and so our sea levels will rise by three quarters of meter or more. So low lying areas in the tropics are very vulnerable. So we're sitting there where canaries in the mine, and you could either think, well, how do I get some little bit of air for me I'm watching these other canaries in the mine being severely starved of oxygen, or you can try and fix the mine. And that's the only fundamental way of solving this problem. And that's about not just our loss and damage and climate adaptation and resilience. The biggest story is climate mitigation. There we see the countries who could do something about it looking at each other across the table and pointing each other and all of them saying that this is very important, this is very urgent, and you, pointing across the table, need to do more about it, and we're stuck.
And you wrote a paper that defined the problem as a deadlock. And it's really precisely the word to be used in this case, because I've been to COP meetings before. These are places where rich countries and poor countries come together and the finger pointing gets really problematic. Rich countries would say to poor country as well, we understand we cause this problem, but you now need to reduce emissions too, because otherwise we don't have the carbon space available to deal with this problem. And then poor countries would go, we can do that if you give us money. Where is the money? And that money never comes. And so one way to think about the climate problem is really it's a finance problem, and so it's understandable that trying to address it through the finance lens is crucial. So what is it that you think will unlock it.
Well, I think it's important to say that two years ago, the prevailing view was it was an ignorance problem. It was a science problem. People didn't believe the science. They were in denial they just didn't believe it, and we were listening to people were thinking, that's not the problem. The problem is that that everyone believes someone else should be doing more. And our issue was the only way we could get around that problem is finance. Why do they believe someone else should do more because it's a cost to them to do it. So if we can make it easy for them to do it, we can reduce the cost for them, we can finance it. They won't spend their time pointing their finger to someone else. They will get it done.
And so Dominica happens. You go back and you start working on trying to solve this problem. This is back in twenty seventeen eighteen nineteen period. You put out what is called a Bridgetown Agenda, named after the capital of Barbados last year, and you're now this month coming out with an update to that agenda. Let's go through the broad strokes of what that agenda does and how it addresses this finance problem.
So the experts say that developing countries need two point four trillion dollars every year to deal with climate. So that's mitigating the climate, preventing it getting worse. That's resilience and adapting to the existing change in the climate, and that's also addressing the loss and damage. So you add all that together two point four trillion dollars. Now, of course few people can imagine two point four trillion dollars. So I think the way to think about this is that all of the aid in the world add up everything for everything is two hundred billion dollars per year. So we're talking about something that is twelve times more than what's currently happening every year. Twelve times, and so you know you've got a problem because you know they might be ab to increase it by ten percent, no one's increasing it by twelve times. So bridge down is the solution to get to the twelve times. So we say we can't do it, but it needs three different buckets of financing. The first bucket the biggest bucket. It's stuff you have to do which has a revenue stream attached. You can do it and it makes money. So you know, building a solar farm makes money, a wind turbine makes money, a hydroelectric power makes money. So inside this bucket is a lot of things that make money but will mitigate the climate, will prevent it getting worse will help us in the green transformation. What we need to do to fill that bucket is we need to find a way of catalyzing the private sector to get them into doing this in developing countries. They're doing this in the rich countries. Eighty one percent of all time mitigation green transformation stuff is financed by the private sector in rich countries, but only fourteen percent in the poor countries. So we've got to change that equation. And we've got a solution to it. It's around guaranteeing the foreign exchange risk that the private investor has when they go to development countries. But we can come back to that.
Yes, I mean, that's the hardest solution to get your head around, but it also is the biggest problem to address. And then the two other buckets.
So the second bucket, second biggest, This is for things which they are no revenues, but they are savings. And so if there are no revenues but savings, you can borrow to fill this bucket. Now, what's in this bucket. This is stuff like a sea wall. You don't make money from having a sea wall, but you save money from all the times that the capital city is not flooded because you've got this new sea wall. All very unglamorous stuff, but very very important and saves a lot of money. So this bucket is about resilience, adaptation. We can fund a lot of those things. The third bucket is the smallest bucket, addressing the loss and damage.
Right, if you don't reduce emissions and you don't adapt to warming, then you will get damages from climate impacts.
That's right, and there's a fair amount of those damages in which you have to respond. All of your low income homes have lost their roof, they've washed away, and these are people who do not have any resources, do not have any ability to ensure. Insurance companies are not going to ensure them. So they're no revenues and they're no savings. So we can't borrow for this, so we need grants. So the grand bit we've made the smallest bit possible. We've shrunk it. It's not a two point four trillion dollar task, but it's one hundred billion dollar task. And we recognize that governments don't have one hundred billion dollars stuff behind the sofa EID budgets are not going to double, they're not going to increase from two hundred billion to three hundred billion, So we need new revenue streams. That's something like an emissions tax in the shipping industry. Shipping is a significant part of emissions increases. There's a proposal for a one hundred dollars per ton of carbon as a result of emissions in the shipping industry. That would fund the third of that bucket. Oil and coal exports. If there was a small levee on those exports, a one percent levee, that would fund the other two thirds. So that's how we deal with that third bucket.
And you're going to bring these solution sets under the Bridgetown Agenda two point zero to a summit in Paris this month, which is aimed at using the solution set to try and fix the global financial architecture and not just address climate change, but other crises like inequality and loss of biodiversity. But sticking to the climate solution, let's walk through the most complicated and the largest bucket, which is to try and make private capital move to poor countries at a much faster rate, at a bigger volume every year for the rest of this century. Why is it not already happening? Because you get to hear these things, which is solar is the cheapest form of electricity you can get anywhere in the world, especially in countries like India and other developing countries within the tropics, the places that have the impact. If that's the case, why does the money not flow?
So there are two problems of the idea that renewable energy is free and easy and cheap. There are two problems. Firstly, they're very capital intensive, so I've got to buy the land, I've got to buy the panels, I've got to erect them and connect them, and that's very cap intensive. Most of that is foreign currency required for that. And then I'm getting revenues for the solar farm in local currency. So I have a big bill that's a foreign currency bill and paying for it through local currencies. So foreign investors need to be involved because they're the ones with the foreign currency and they look at this country and they say, well, you know, there's risks of the project, But the solar farms are pretty standard tech today, win farms, hydroelectric. There isn't really a tech problem. The problem is that the country may have a currency risk, there may be a credit risk, and if you unpack the risks involved in that investment. It's not tech, it's not the project, it is currency in credit.
So these risks, which we can understand as macro risks, come in different from one that is easy to understand.
Is political risk.
The country may be a democracy, but may have a military dictatorship just sitting in the back, which comes in and there is a problem. There could be regulatory changes made because there's been a change in the party that rules the country. Those are political risks that you can kind of understand. But what does currency risk mean? Currency risks are an interesting basket which collects almost all of those other country type risks. So if the change your government creates uncertainty, your currency tends to fall. If people are uncertain whether you could pay your debts, your currency falls, and so currencies are very volatile. And when institutional investors in America in Europe invest, they want to hedge themselves from these kinds of risks that they're unfamiliar with. Hedging involves one company paying another company for a risk they don't want to take. For example, if you're an American investor with assets in India and you're worried that the Indian rupee could fall in value, you would ask a bank to take care of that risk for you. If the rupee does fall, the bank will deal with the losses and you'll still get the exchange rate you agreed with the bank. If the rupee rises in value, the bank makes money, but you still get the same exchange rate. You the investor, don't have to be worried about currency risk, and the bank has a service it can make money.
Off institutional investors in America in Europe, they'll say, I'm in the energy sector, and I understand energy. I'm in the tech sector. I understand tech. I don't understand the South African rand. I'm not an expert in that or the Indonesian rupea and so I want to hedge myself from those risks. And the hedging costs basically eat up about two thirds to three quarters of the return, and so what they're left with the hedged return is measly like a three to four percentage point return. And if you're an institutional investor, you're thinking, why add that to my portfolio. I want a seven or eight percent return at least.
Let's take an example of a project to be able to understand these numbers, because it gets easier if we focus, say on a solar plant in South Africa, a developing country that has a very coal heavy electricity sector, but is willing and is big participant in the global system to try and address this problem through finance. So say you were building a solar plant in South Africa, give it ten million dollars. Now what is it that I, the private investor who would like to invest in your solar plant, need to think about? And why would I choose you over a solar plant I could build in the UK.
So you're not so much worried about solar. But the problem is that you, the investor, are only prepared to go if the return not only gives you the same return you'd get for solar farm in Germany, say, but an additional return for all of the additional risks, the currency risk, the credit risk, the political risk. And when you take all of those risks out, it's hard for those projects to give you the return that you want. So we need to find a way of hedging those risks cheaper to make the returns more attractive. And there's a way we can do it. Because if you observe in a case of so Africa is a good one. You know, the cost to hedge the currency risk that the South African currency is called the rand. The rand is a fairly volatile currency and it costs you, you know, eight to nine percent to eliminate the risk of loss from the currency eight to nine percent per.
Year, which means that if I were making say a profit of five percent on my German solar farm, I would need to make a profit of fourteen percent in South Africa for those projects to be comparable for the financial written that I, the investor is getting from the solar plant. Is that right?
Exactly, same tech, same project. It can make five percent in Germany. The equivalent deman it needs to make in South Africa to attract me is fourteen percent. Because I got to take out nine percentage points of that fourteen And why do you have to take out nine because that's all the currency risk and the credit risks for me investing in South Africa. The thing is that when we look back in time, the actual risk, so how much did the currency fall? It wasn't nine percent. It was in a case of South Africa, it was like four percent. So I'm over paying for that risk by five percentage points per year. If I didn't overpay for that risk, that project could have yielded me not a five percent return, but a ten percent return.
That sounds like somebody left money on the table, which is to say markets usually the whole idea of them is through their functioning, will find the most efficient way to make these hedges possible, which is to say, there should not be a gap between what happened in reality and what kind of risk they hedged. So why is it that they are overpaying for these hedges if the reality of the currency risk is not appearing.
I think it's a couple reasons. You might argue that there's an uncertainty premiere that South Africa's one of one hundred and ninety two countries, and people aren't investing heavily to be experts in so Africa because they've got other countries to look at, and so they feel that there are risks out there which they don't fully understand, and there's uncertainty. Then also the investment may make a return in the long run, but in the intervening period it could be quite volatile, and investors tend to be risk averse. They don't like to use a lot of capital money that they can absorb a loss, and so they don't like even if you offer them a nice return at the end, they don't like the fact that they would have had a few loss or few heartbeats along the way, and that they had to carry a lot of this loss absorbing amount of spare cash, if you like, in the intervening period, they can do more with that money. It is what economists we call it a market failure because this thing, this activity will make money and will have a huge social benefit, could save the planet. Right, you can't get bigger than that. But there's other things the private sector could do with their money, right, and they could make more.
Money, and that's doing some of the short term versus the long term. In the short term and on a year to year basis or even five year basis, they don't want to be seen as making losses, even though overall in the thirty year life of this solar planet they will make more money.
You're right, But it's also the fact that it may make money, but it may not make enough money because they can do other things with their money. So simply saying it's profitable isn't enough. If there are other things that are more profitable. Well, the reason why we call it a market failure is a it's profitable privately, there's a private return to be had, but socially there's a huge return to be had. So there's a social return that's being lost because the private sector is finding that there are other things which there's a better private return. So that's a classic example of where we need to kind of align the social return and the private return to get private savings invested in this.
So we're talking here about getting investors from abroad to come into countries like South Africa. But what is it with countries like India, which are large economies which could just have their own central banks, create their own money, lend it out to their own private players. Why do they have to rely on foreign investors, especially if it's a large economy.
Well, I think that a couple of reasons. Firstly, even though it's a large country, there's a large need and savings are good in India, but they're not bountiful the other things that those sigments could do. And if you remember earlier, we talked about the fact that there's a foreign currency requirement because they may need to import the tech and the panels and a range of things. I mean, India is investing. Our issue isn't that some countries aren't investing. They're just not investing fast enough. They may feel the investing in the right pace for them, and it may be the right pace for their economy is just not the right pace for the planet. So we need to turbo charge that investment by making it cheaper and easier and more profitable.
So far, we've talked about the problem Avinash is trying to solve, and with the Bridgedown initiative, he thinks he has a solution that's coming up right after the break through the Bridgedown agenda to point out, you say that with this currency hedge risk solution, and let's talk about the solution, you could move as much as one point five trillion dollars of private capital into climate oriented solutions that would be profit making on an annual basis. So what is the solution.
The solution is that we have an agency that that sits in the WARL Bank and the IMF. The agency is a not for profit. It is not trying to make money. It is trying to make sure there's no overpayment to hedge these risks. It's not saying they're no risks. It's not saying there's a cost for the risk. It's eliminating the over payment. The overpayment will substantially cut the cost of hedging and significantly boost the rate of return. The rate of return of these projects now will jump from say a four percent rate of return, which is uninteresting for investors, to more like a nine percent rate of return, which is suddenly a classic kind of return to fit into international portfolios of investment FRO an investor point of view, You suddenly got something as interesting to ignite the excitement of the private sector today. The rate of return is too low, too uncertain, too risky.
But there is already an organization, as I understand, called TTHX you're in Europe, that was funded by development agencies. These are agencies that give money to developing countries for projects, and it does currency risk hedging and it makes a small profit. Why do you think you need a different institution? Couldn't DCX just be made bigger and solve the problem. TCX finds you the market hedging price. We're saying the market hedging price is wrong. The market hedging price is an over payment for the risk, an over payment by half t SX doesn't have the capital or liquidity to basically say the market you're wrong. I'm going to hang out here and offer you a different exchange rate for billions of dollars of types of projects that is four or five percentage points per year different than the market rate, because I know that in the long run I'll be okay, and you're taking this risk. The IMF and will Bank can do it because if they get it right, they may even make a little bit of money. They get it wrong, it's had a huge social benefit and that is their actual remit and their mandate. So if you succeeded, you create this institution within the World Bank and the International Monetary Fund that's a not for profit that does the currency hedge risk. So now you're saying, suddenly, my investment in the solar farm in South Africa becomes attractive compared to my investment in a German solar farm, just because that five percent has now been absorbed by this new body that you've created. How much money does that body need to have to be able to manage this kind of currency hedge risk in one hundred and fifty countries, which your class is developing countries in the world today.
So if what we were suggesting was a subsidy, that would limit its scale, because subsidies mean actually it's a code word for grants, and grants are not unlimited. But what we're saying is this is not a subsidy. This is removing the over payment. This is saying we want the price of the risk to ex post after the event to be equal to the actual cost of the risk. At the moment, the price of the risk is substantially bigger than the actual risk. And so if I'm not doing something that is a subsidy, it's not a grant, it actually is something in the long run is profitable, then I can be unlimited in my scale. I can scale up to the amount of the investment the world needs, which is about one point five trillion dollars per year of investment. They're not going to need one point five trillion of hedging. But this is a key point because there's always people out there saying we want grants, we want subsidies. And one of the messages we're saying, and it's a typical bridge down, is saying yes, that will be nice, but don't we want scale needs scale, and if you focused only on grants, only on people transferring money to you, you're never going to get the scale we need to save the planet.
Let's look at a few other solutions in the set we talked about the three buckets, and so you'll move money through currency risk hedging that will allow private investors to invest more money. You'll, for adaptation, increase the amount that could be lent and enable that lending to be paid for through the savings that the countries will make. And there may be some form of emissions tax to be able to actually have a smaller amount of grants given for damages. But there are other things that you're proposing that could also be very beneficial for countries. So one thing is, for example, in Barbados, you introduce their unnatural Disaster clause in some of your loans or debts that you've taken on, and those trigger when a big catastrophe happens and then you don't have to make those repayments for a period of time. You know, how does that help Barbados? And can this be applied to other countries?
So you know, let's recap we've got a world now of that's facing these bigger, more frequent shocks. So we've never had before climate related sharks, pandemic shocks, and that was the mother of all shocks, right, the last pandemic. So the world is now facing more shocks. We've come up with a way of trying to mitigate some of those shocks, to reduce them, to adapt for them, and to come up with loss and damage. But the system just needs to be more shock absorbing because of this changed world we're in. And shock absorbing doesn't sound very exciting.
But shock absorbing. Tried driving a car without a shock absorber and you know what happened. So it's very important.
It's very important, but it's particularly important for poor countries and poor people. Poor people often live on the edge. They may appear to be fine, but it's weeks without a job and suddenly they're plunged into poverty. Same with countries. So if you're a rich country and you have a shock, I mean, you can do quantitative easing, print some cash, you can borrow some money. Poor countries can't really do that. They don't have reserve currencies either, so in a crisis, their currency plunges in a crisis, American and the European currencies go up, so they need shock absorbers. So there are two types of shock absorbers. There is the public sector shock absorber. The international multi fund should behave a little bit like a lender of last resort, the way a central bank behaves for its local banks. We need the IMF to be like a central bank for the world and it should offer when is a crisis, a facility where you can get emergency cheap quick money. It's limited, but it's quick. Secondly, because international capital markets are bigger than the IMF could ever be, we need to look at the financial instruments that the world has, especially the debt instruments.
So we have.
We weren't the first. The Caribbean has pioneered natural disaster clauses in bonds. Grenadians and Kits were the first. We are the world's largest issuer of sovereign bonds with natural disaster clauses in them. So these are clauses which says, if an independent entity has declared that you have had a major national disaster, a hurricane or something else, then for two years all of your debt servicing. That means your interest payments, your repayment of the debt that's suspended for two years. You get this breathing space for which you can focus on the disaster. And then all of that debt service that was suspended is added back on. At the end of the instruments, the instrument becomes automatically two years longer, and you've got to pay some interest for that period of time, which was the same as the interest beforehand. And so it provides you liquidity. It's not free money, it's liquidity. It's reshuffling the payments to give you the breathing space when you need it. The creditor, the person who lent you the money, is no worse off. They get all their payments back plus interest, but they just have they've allowed a different shift in the timing, and that's so important for dealing with the crisis. Nobody gives us the amount of liquidity that we would get from these instruments. If a disaster hits Barbados. This this saves us eighteen percent of our GDP one eight percent of our GDP. All the other multilateral development banks put together offer us all kinds of contingency lending. They come up to about two percent. So this really is a life changer. If every developing country had them during the pandemic, for example, it would have given them one trillion dollars of liquidity to deal with the pandemic. In the end, development countries, because they had no liquidity and no ability to get extra cash, they only spent all of them half a trillion on a health crisis. This would have given them one trillion. They could have spent twice as much.
You're going to take this idea bridged on Agenda two point zero to Paris in front of world leaders and you're trying to get them to agree.
That this is the solution. Said they should back who is on your side. Bridgetown is about setting the pace of ambition. It's not about gathering signatures. We came up with a global plan. We thought it would trigger other people coming up with global plans, and we would nick the best ideas of all the other plans and make our plan better. But we've still remain principally the only plan because too many countries are already focused on their interests. They find it very hard to come up with a global plan the world. It's easy for us, being the canaries of the mind to say well, we've got a plan to save the mind, because that's important for us. So we're not looking for people to sign up. We're looking to push people on their ambition to normalize socialized ideas, to discuss them and debate them, and to make them think deeply on why not If you really do think this is important? Why not?
But these institutions, the World Bank and the IMF were created decades ago at a time that was very, very different from today. You've said, in effect that from the conception there were fundamental problems with these institutions. There have been many attempts to try and reform them, and small changes have been made, But why do you think this time around they will change.
I think we have a moment today. I'm not sure exactly why that is. I think Bridge Down has helped to create that moment, but many other have. The enormous tragedy of Pakistan last year, thirty million people homeless, twenty seven thousand schools underwater. I think the heat waves and the flooding in Europe and America has helped to create that moment. I think the nature of the current US administration, European governments, we've had a US Treasury secretary saying we need to go from billions to trillions. Well, to be quite frank, we've never had a US Treasury secretary say that before. I think also, the system is broken and it's clear that if we don't fix it, somebody else will replace it. You know, we've fumbled along with a forty system for a long time. But now they're alternatives, and people are presenting alternatives, and we are seeing that what was previously in open trading system, governments are championing an alternative trading system. You're seeing that happening with debt. We've got a global debt restructuring process that is being changed. It's different. So I think people realized that the stakes are bigger than ever before, which is that this system, if it's not fixed, will just be brushed away as irrelevant. And at the core of the system our institutions established around nineteen forty five now the world. In nineteen forty five, the European Empires were still largely intact. India doesn't get its independence until a few years later, so the vast majority of countries today did not exist back in nineteen forty five, and in nineteen forty five. The problem was rebuilding Europe after the war, the idea of climate change, of pandemics, of inequality, those things were not forefront in their agenda. They've evolved over time and they've become much more focused on poverty in the poorest countries. But the world is also evolved. We need to fix the system, and we need to change its focus and its remit and most importantly, we need to scale it up. It is so tiny it is irrelevant. It is irrelevant today. We need to say, the total all of the multilateral debump banks put together lend about one hundred billion dollars. Remember the figure we used at the beginning. We need two point four trillion dollars. We need to get that lending up from one hundred billion to four hundred or five hundred billion. We need to scale it up.
Who is presenting alternatives to the World Bank and IMF that could brush these institutions aside.
The international system is being replaced, not by a grand plan, but being chipped away. So today it's irrelevant. Today when people want investment, you've got the World Bank, but you've got a number of other people coming to you offering money, offering money on good terms.
I meanash doesn't say it, but the elephant in the room is China. Since twenty fifteen, China has offered one hundred and eighty five billion dollars in assistance to countries in debt distress, including Argentina, Pakistan and Nigeria. That's according to a study by AID Data. Over the past decade, China's overseas bailouts are more than twenty percent of the total lending of the IMF, and the amounts are growing, providing an alternative source of money to countries that need it.
You've got a so called Paris Club system of debt rescheduling and restructuring, but you've got other people offering debt and restructuring it.
You have a.
System that is being chipped away because it's irrelevant. So if we want to have an international system with international rules, there's multilateral it has to work. If developing countries feel it's irrelevant to them, that they don't have a voice, that it is not suited to their challenges and issues, they will listen to anybody else.
What do the leaders of the World Bank. We have a new one in Ajabanga and the IMF Crystallina Georgieva think of the Bridgetown to point zero agenda.
Both of it have expressed support for the Bridgetown initiative. Our job is to make their job easier. They'll say that they lead institutions that have shareholders who drive policy, and we've been focused on influencing the shareholders.
And those shareholders are essentially the largest economies with the largest amount of shareholding.
Roughly speaking. Yes, the shareholding framework was set back in nineteen forty five and it is based it's heavily skewed towards the Europe and the United States, and they're quite protective of their shareholdings and don't wish them to form. But I think it's important to say that one of the reasons why we have a moment today is we have a leadership of the two main institutions who I think want to make sure their institutions are more relevant and more relevant to today's new problems.
Thank you so much. This is a very important topic, very complicated topic, but without it you cannot break the deadlock, and I'm really glad to have explored those solution sets with you today.
Thank you.
I'll be heading to Paris next week with my colleagues from Bloombergreen to report on the summit, including the reception to Avinash's plan. For all the latest visit Bloomberg dot com Slash Green. Thanks for listening to Zero. If you like the show, please rate, review, and subscribe on Apple Podcasts or Spotify. If you enjoyed this week's episode, please share it with a friend or someone who's planning a trip to the Caribbean. If you've got a suggestion for a guest or topic or something you just want us to look into, get in touch at Zero pod at Bloomberg dot Net. Zero's producer is Oscar Boyd and senior producer is Christine Riskell. Our theme music is by Wondering. Special thanks this week to Kate McKenzie and Kira Bindram. I'm Akshatrati back next week. By the way, your name and my name mean the same thing.
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